EU States Told To Address Widening VAT Gap

by Ulrika Lomas, Tax-News.com, Brussels

07 September 2015

Tax Commissioner Pierre Moscovici has urged European Union (EU) member states to "take the steps needed to fight tax evasion and tax fraud," after new figures showed that the value-added tax (VAT) gap did not narrow in 2013.

According to a new Commission report, the total amount of VAT lost across the EU was approximately EUR168m (USD187.5bn) in 2013. This equates to 15.2 percent of total revenue lost to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies, and miscalculation in 26 member states. Croatia and Cyprus were not included in the estimates, due to as-yet-incomplete national account statistics for the two countries.

The Commission found that the overall VAT Total Tax Liability (VTTL) for the EU-26 grew by around 1.2 percent, while collected VAT revenues rose by 1.1 percent. The VAT gap is defined as the difference between the amount of VAT actually collected and the VTTL, in absolute or percentage terms.

The VAT gap increased year-on-year in absolute values, by EUR2.8bn. As a percentage, the overall VAT gap stayed constant at 15.2 percent.

In 2013, member states' estimated VAT gaps ranged from a low of four percent in Finland, the Netherlands, and Sweden, to a high of 41 percent in Romania. 15 member states, including Latvia, Malta, and Slovakia, saw an improvement in their figures. On the other hand, 11 member states, including Estonia and Poland, saw a deterioration.

The VAT system in the EU is governed by a common legal framework, the VAT Directive. There is a minimum standard VAT rate of 15 percent, above which EU member states are free to set their own national VAT rates.

Moscovici said: "This important study highlights once again the need for further reform in VAT collection systems across the EU. I urge Member States to take the steps needed to fight tax evasion and tax fraud at all levels. This remains a burning issue and is at the top of this Commission's agenda."

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